Treasury Secy. Paulson's plan to get the financial system under control doesn't address a once-obscure kind of credit insurance that's become an enormous money-maker for some of the country's biggest banks and other rich investors. Bob Moon explains.

KAI RYSSDAL: Judging by Wall Street today you'd think the whole Bear Stearns episode never happened. Traders bought like they didn't have a care in the world. The truth is that there are still huge chunks of the financial system that aren't healthy yet. Henry Paulson announced a plan yesterday to try to get some of that system under control. But his proposal doesn't discourage the speculation that helped create the problem. Take, for example, a once-obscure kind of credit insurance that's become an enormous moneymaker for some of the country's biggest banks and other rich investors. Our Senior Business Correspondent Bob Moon is here to try to explain this for us.

Hi, Bob.

BOB MOON: Hello, Kai.

RYSSDAL: So I take it what we're about to hear is another thing that we knew nothing about, but yet somehow now we need to be really, really concerned about?

MOON: I'm afraid so. In this case, what you don't know can hurt you. I'm going to try to mention this term only once, Kai. We're talking about something called "credit default swaps."

RYSSDAL: And they are?

MOON: They were invented a few years back so banks and bondholders -- the investors -- could make sure that they got paid back when companies failed to pay their loans. So in a way, you could call this insurance.

RYSSDAL: You could call it that, but we don't -- we call it something else. How do these things work?

MOON: Well, this is where it gets tough, Kai, because a lot of people on Wall Street, even some of the leading economists in the academic world, don't really understand exactly how these things work. A lot of them are whipped up with some computer wizardry, some advanced math -- think of those fancy Greek letters turned on their sides. And there's a lot of guesswork to this, too, about how much they're really worth.

RYSSDAL: All right, so what's the problem, though, if everybody agrees that they don't know what they're worth?

MOON: Well, the critics I've spoken to complain that they're really nothing more than gaming instruments -- gambling. Turns out that the big hedge funds that attract so much money from rich investors and big institutions, well, they're playing the market on their own, and they don't even need to have a stake in a particular company to do that.

RYSSDAL: I'm going to make the analogy here to a March Madness office pool, right? I go in, I pick a basketball team, and if they do great, that's great, but I'm not vested.

It is. Except instead of wagering on UCLA and Auburn, these big bankers and brokers and hedge fund managers pick up the phone and they negotiate these wagers privately. Nobody really regulates this. They've created this incredibly enormous shadow financial system, if you will, that's virtually hidden from investors and analysts and regulators.

RYSSDAL: How big would "incredibly enormous" be?

MOON: OK, I'm about to unload some numbers on you here, so I'll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

RYSSDAL: That's a lot of money, Bob.

MOON: It is, and the great unknown here is that these things get traded, or swapped, between the banks and hedge funds and other investors, and there's really no one who oversees or regulates these trades to guarantee that the buyer actually is going to be able to make good on these if they have to. And these things end up being so interconnected that it's not just like single line of dominoes falling, if one fails. Imagine one falling domino taking down two more, and those taking down four more, and eight, and so on.

RYSSDAL: OK, I'm with you, but let me ask you this. We just had the secretary of the Treasury yesterday with a big policy announcement. If these things are so bad, what's being done about it?

MOON: The irony here is that the former Fed Chairman Alan Greenspan, a couple of years ago he called credit default swaps "probably the most important instrument in finance," because they were supposed to spread risk around and stabilize the market. Well, critics now say that they've had exactly the opposite effect. One of the leading critics of these things is Christopher Whalen. He's an expert on financial risk at Institutional Risk Analytics. And he told me that this is nothing more than government-guaranteed gambling:

CHRISTOPHER WHALEN: They are the most hideous kind of speculation. To have a federally insured bank like JPMorgan as the largest dealer in this market, to me says we don't know what we're doing anymore, and we don't understand the difference between real work -- real economic activity -- and something that's essentially wasting.

MOON: And Whalen points out that Bear Stearns had more than $2.5 trillion in credit default swaps. He suspects that that's why JPMorgan came to the rescue, so it didn't get pulled down.

RYSSDAL: Yeah, not too big to fail, but too interconnected to fail, right?